FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1997
Commission File Number 0-28350
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-3823300
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management Inc.
390 Greenwich St. - 1st Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statement of Financial Condition
at September 30, 1997 and December 31,
1996. 3
Statement of Income and Expenses
and Partners' Capital for the three
and nine months ended September 30,
1997 and 1996. 4
Notes to Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 9 - 10
PART II - Other Information 11
2
<PAGE>
PART I
Item 1. Financial Statements
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS:
Equity in commodity futures trading account:
Cash and cash equivalents $13,108,656 $15,167,522
Net unrealized appreciation
on open futures contracts 1,147,430 445,494
Zero Coupons, $29,972,000 and $34,660,000
principal amount in 1997 and 1996, respectively,
due February 15, 2003 at market value
(amortized cost $21,979,666 and $24,344,837
in 1997 and 1996, respectively) 21,736,893 23,726,503
Commodity options owned, at market value
(cost $3,505 in 1996) - 1,987
-------------- --------------
35,992,979 39,341,506
Receivable from SB on sale of Zero Coupons 1,199,136 813,930
Other assets - 62,847
Interest receivable 43,843 -
-------------- --------------
$37,235,958 $40,218,283
============== ==============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 109,989 $ 119,361
Management fees 48,407 52,377
Incentive fees 87,296 372,390
Due to SB - 62,847
Other 35,921 42,412
Commodity options written, at market
value (premiums received $2,400 in 1996) - 2,916
Redemption payable 1,931,564 1,312,276
-------------- --------------
2,213,177 1,964,579
-------------- --------------
Partners' Capital:
General Partner, 376 Unit
equivalents outstanding in 1997 and 1996 439,363 414,984
Limited Partners, 29,596 and 34,284
Units of Limited Partnership Interest
outstanding in 1997 and 1996 , respectively 34,583,418 37,838,720
-------------- --------------
35,022,781 38,253,704
-------------- --------------
$37,235,958 $40,218,283
============== ==============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS THREE-MONTHS NINE-MONTHS NINE-MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Income:
Net gains (losses) on trading of
commodity interests:
Realized gains (losses) on closed positions $ 1,492,612 $ (819,677) $ 1,448,523 $ (569,983)
Change in unrealized gains/losses on open positions 537,049 879,171 703,970 336,737
---------------- --------------- ------------- -------------
2,029,661 59,494 2,152,493 (233,246)
Less, brokerage commissions and clearing
fees ($8,916, $9,498 and $27,968 $32,185, respectively) (365,841) (337,281) (1,103,114) (1,068,959)
---------------- --------------- ------------- -------------
Net realized and unrealized gains (losses) 1,663,820 (277,787) 1,049,379 (1,302,205)
Realized losses on sale of Zero Coupons (13,124) (18,362) (95,065) (54,600)
Unrealized appreciation (depreciation) on Zero Coupons 485,234 75,012 375,561 (1,661,913)
Interest income 473,648 455,713 1,465,749 1,440,422
---------------- --------------- ------------- -------------
2,609,578 234,576 2,795,624 (1,578,296)
Expenses:
Management fees 148,820 130,381 440,244 406,063
Other 8,729 18,710 113,169 46,763
Incentive fees 87,296 - 208,802 (304,589)
244,845 149,091 762,215 148,237
---------------- --------------- ------------- -------------
Net income (loss) 2,364,733 85,485 2,033,409 (1,726,533)
Redemptions (1,931,564) (578,189) (5,264,332) (1,661,600)
---------------- --------------- ------------- -------------
Net increase (decrease) in Partners' capital 433,169 (492,704) (3,230,923) (3,388,133)
Partners' capital, beginning of period 34,589,612 36,289,012 38,253,704 39,184,441
---------------- --------------- ------------- -------------
Partners' capital, end of period $ 35,022,781 $ 35,796,308 $35,022,781 $35,796,308
================ =============== ============= =============
Net Asset Value per Unit
(29,972 and 35,849 Units outstanding at
September 30, 1997 and 1996, respectively) $ 1,168.52 $ 998.53 $ 1,168.52 $ 998.53
================ =============== ============= =============
Net income (loss) per Unit of Limited Partnership
Interest and General Partnership Unit equivalent $ 74.78 $ 2.29 $ 64.84 $ (46.19)
================ =============== ============= =============
Redemption Net Asset Value per Unit $ 1,168.52 $ 1,002.06 $ 1,168.52 $ 1,002.06
================ =============== ============= =============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. General:
Smith Barney Principal Plus Futures Fund L.P. (the "Partnership") is a
limited partnership which was initially organized on January 25, 1993 under the
partnership laws of the State of New York and was capitalized on April 12, 1995.
No activity occurred between January 25, 1993 and April 12, 1995. The
Partnership engages in the speculative trading of a diversified portfolio of
commodity interests including futures contracts, options and forward contracts.
The commodity interests that are traded by the Partnership are volatile and
involve a high degree of market risk. The Partnership maintains a portion of its
assets in interest payments stripped from U.S. Treasury Bonds under the
Treasury's STRIPS program which payments are due approximately seven years from
the date trading commenced ("Zero Coupons"). The Partnership commenced trading
operations on November 17, 1995.
Smith Barney Futures Management Inc. is the general partner (the "General
Partner") of the Partnership. Smith Barney Inc. ("SB"), an affiliate of the
General Partner, acts as the commodity broker for the Partnership. All trading
decisions are made for the Partnership by John W. Henry & Company, Inc., Abraham
Trading Co. and Rabar Market Research Inc. (collectively, the "Advisors").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Partnership's financial
condition at September 30, 1997 and the results of its operations for the three
and nine months ended September 30, 1997 and 1996. These financial statements
present the results of interim periods and do not include all disclosures
normally provided in annual financial statements. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes included in the Partnership's annual report on Form 10-K filed with
Security and Exchange Commission for the year ended December 31, 1996.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
5
<PAGE>
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three and nine months ended
September 30, 1997 and 1996 were as follows:
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
Net realized and unrealized
gains (losses) $ 52.61 $ (7.63) $ 34.09 $ (34.94)
Realized and unrealized
gains (losses) on Zero
Coupons 14.93 1.56 9.62 (45.72)
Interest income 14.98 12.51 43.81 38.75
Expenses (7.74) (4.09) (22.68) (4.05)
Other (0.06) (0.23)
--------- --------- --------- ---------
Increase (decrease) for
period 74.78 2.29 64.84 (46.19)
Net Asset Value per Unit,
beginning of period 1,093.74 996.24 1,103.68 1,044.72
--------- --------- --------- ---------
Net Asset Value per Unit,
end of period $1,168.52 $ 998.53 $1,168.52 $ 998.53
========= ========= ========= =========
Redemption Net Asset
Value per Unit * $1,168.52 $1,002.06 $1,168.52 $1,002.06
========= ========= ========= =========
* For the purpose of a redemption, any accrued liability for reimbursement of
offering and organization expenses will not reduce redemption net asset value
per unit.
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the statement of income and expenses.
The Customer Agreement between the Partnership and SB gives the
Partnership the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are
6
<PAGE>
held for trading purposes. The fair value of these commodity interests,
including options thereon, at September 30, 1997, was $1,147,430 and the average
fair value during the nine months then ended, based on monthly calculation, was
$1,041,746.
4. Financial Instrument Risk:
The Partnership is party to financial instruments with off- balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
include forwards, futures and options, whose value is based upon an underlying
asset, index, or reference rate, and generally represent future commitments to
exchange currencies or cash flows, to purchase or sell other financial
instruments at specific terms at specified future dates, or, in the case of
derivative commodity instruments, to have a reasonable possibility to be settled
in cash or with another financial instrument. These instruments may be traded on
an exchange or over-the-counter ("OTC"). Exchange traded instruments are
standardized and include futures and certain option contracts. OTC contracts are
negotiated between contracting parties and include forwards and certain options.
Each of these instruments is subject to various risks similar to those related
to the underlying financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of
default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized in the statement of financial condition and
not represented by the contract or notional amounts of the instruments. The
Partnership has concentration risk because the sole counterparty or broker with
respect to the Partnership's assets is SB.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems and, accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring
7
<PAGE>
systems allow the General Partner to statistically analyze actual trading
results with risk adjusted performance indicators and correlation statistics. In
addition, on-line monitoring systems provide account analysis of futures,
forwards and options positions by sector, margin requirements, gain and loss
transactions and collateral positions.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. At September 30, 1997, the notional or
contractual amounts of the Partnership's commitment to purchase and sell these
instruments was $182,274,152 and $42,469,420, respectively, as detailed below.
All of these instruments mature within one year of September 30, 1997. However,
due to the nature of the Partnership's business, these instruments may not be
held to maturity. At September 30, 1997, the fair value of the Partnership's
derivatives, including options thereon, was $1,147,430, as detailed below.
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
TO PURCHASE TO SELL FAIR VALUE
Currencies
- - Exchange Traded Contracts $ 2,295,048 $ 7,030,605 $ (554)
- - OTC Contracts 8,717,199 15,113,435 (8,335)
Energy 3,041,681 0 (76,782)
Grains 534,681 916,055 (57)
Interest Rates Non-U.S. 136,933,030 10,349,541 1,041,082
Interest Rates U.S. 23,734,222 0 67,134
Livestock 0 1,004,660 19,180
Metals 6,139,814 3,088,759 (12,467)
Softs 612,745 2,494,300 9,601
Indices 265,732 2,472,065 108,628
------------- ------------ ---------
Totals $182,274,152 $42,469,420 $1,147,430
============= ============ ==========
5. Pending Merger:
On September 24, 1997, Travelers Group Inc. ("Travelers") and Salomon
Inc ("Salomon") announced an agreement and plan of merger pursuant to which
Salomon will become a wholly owned subsidiary of Travelers and Smith Barney
Holdings Inc., the parent company of Smith Barney Inc. and Smith Barney Futures
Management Inc., will be merged into Salomon forming Salomon Smith Barney
Holdings Inc. The transaction is expected to be completed by year-end 1997.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash and cash equivalents, Zero Coupons, net unrealized appreciation
(depreciation) on open futures contracts, commodity options and interest
receivable. Because of the low margin deposits normally required in commodity
futures trading, relatively small price movements may result in substantial
losses to the Partnership. While substantial losses could lead to a substantial
decrease in liquidity no such losses occurred in the Partnership's third quarter
of 1997.
The Partnership's capital consists of capital contributions, as increased
or decreased by gains or losses on commodity futures trading and Zero Coupons,
expenses, interest income, redemptions of Units and distributions of profits, if
any.
For the nine months ended September 30, 1997, Partnership capital
decreased 8.4% from $38,253,704 to $35,022,781. This decrease was attributable
to the redemption of 4,688 Units totaling $5,264,332 which was partially offset
by net income from operations of $2,033,409 for the nine months ended September
30, 1997. Future redemptions can impact the amount of funds available for
investments in commodity contract positions in subsequent periods.
Results of Operations
During the Partnership's third quarter of 1997, the net asset value per
Unit increased 6.8% from $1,093.74 to $1,168.52, as compared to an increase of
0.2% in the third quarter of 1996. The Partnership experienced a net trading
gain before commissions and expenses in the third quarter of 1997 of $2,029,661.
Gains were recognized in the trading of commodity futures in currencies, energy
products, U.S. and non U.S. interest rates, indices and metals and were
partially offset by losses in grains, livestock and softs. The Partnership
experienced a net trading gain before commissions and expenses in the third
quarter of 1996 of $59,494. Gains were recognized in the trading of commodity
futures in energy products and interest rates and were partially offset by
losses recognized in currencies, indices, metals and agricultural products.
Commodity futures markets are highly volatile. Broad price fluctuations
and rapid inflation increase the risks involved in commodity trading, but also
increase the possibility of profit. The profitability of the Partnership depends
on the existence of major price trends and the ability of the Advisors to
identify correctly those price trends. Price trends are influenced by, among
other things, changing supply and demand relationships,
9
<PAGE>
weather, governmental, agricultural, commercial and trade programs and policies,
national and international political and economic events and changes in interest
rates. To the extent that market trends exist and the Advisors are able to
identify them, the Partnership expects to increase capital through operations.
Interest income on 80% of the Partnership's daily average equity
maintained in cash was earned at a 30 day Treasury bill rate. Also included in
interest income is the amortization of original issue discount on the Zero
Coupons based on the interest method. Interest income for the three and nine
months ended September 30, 1997 increased by $17,935 and $25,327 as compared to
the corresponding periods in 1996. This increase in interest income is primarily
attributable to a higher average cash balance in 1997 as a result of positive
trading performance in 1997.
Brokerage commissions are calculated on the adjusted net asset value on
the last day of each month and, therefore, vary according to trading performance
and redemptions. Accordingly, they must be compared in relation to the
fluctuations in the monthly net asset values. Commissions and clearing fees for
the three and nine months ended September 30, 1997 increased by $28,560 and
$34,155, respectively as compared to the corresponding periods in 1996.
All trading decisions for the Partnership are currently being made by the
Advisors. Management fees are calculated as a percentage of the Partnership's
net asset value as of the end of each month and are affected by trading
performance and redemptions. Management fees for the three and nine months ended
September 30, 1997 increased by $18,439 and $34,181, respectively, as compared
to the corresponding periods in 1996.
Incentive fees are based on the new trading profits generated by each
Advisor as defined in the advisory agreements between the Partnership, the
General Partner and each Advisor. Trading performance for the three and nine
months ended September 30, 1997 resulted in incentive fees of $87,296 and
$208,802, respectively. There were no incentive fees earned in the corresponding
periods in 1996.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/12/97
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/12/97
By /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 11/12/97
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000944697
<NAME> Smith Barney Principal Plus Futures Fund L.P.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,108,656
<SECURITIES> 22,884,323
<RECEIVABLES> 1,242,979
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,235,958
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,235,958
<CURRENT-LIABILITIES> 2,213,177
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 35,022,781
<TOTAL-LIABILITY-AND-EQUITY> 37,235,958
<SALES> 0
<TOTAL-REVENUES> 2,795,624
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 762,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,033,409
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,033,409
<EPS-PRIMARY> 64.84
<EPS-DILUTED> 0
</TABLE>
